Disinvestment and HR issue

Disinvestments

• Definition

• Genesis Of Disinvestment

Disinvestments

• Objectives– To meet the budgetary needs. – To improve overall economic efficiency. – To reduce fiscal deficit. – To diversify the ownership of PSU for enhancing efficiency of individual

enterprise. – To raise funds for technological up gradation, modernization and

expansion of PSUs. – To raise funds for golden handshake (VRS)

Disinvestments

• Types of Disinvestments– Strategic sale – Offer for sale – Reduction in Equity – Asset Sale and Winding up– Management/ Employee Buyout

Disinvestments

• Disinvestments process– Already listed profitable CPSEs (not meeting mandatory shareholding of 10%) are

to be made compliant by ‘Offer for Sale’ by Government or by the CPSEs through issue of fresh shares or a combination of both

– Unlisted CPSEs with no accumulated losses and having earned net profit in three preceding consecutive years are to be listed

– Follow-on public offers would be considered taking into consideration the needs for capital investment of CPSE, on a case by case basis, and Government could simultaneously or independently offer a portion of its equity shareholding

– In all cases of disinvestment, the Government would retain at least 51% equity and the management control

– All cases of disinvestment are to be decided on a case by case basis– The Department of Disinvestment is to identify CPSEs in consultation with

respective administrative Ministries and submit proposal to Government in cases requiring Offer for Sale of Government equity

Disinvestments

• Benefits– Improves efficiency in PSUs through structural adjustments – Reduces or mitigate fiscal deficit – Introduces competition and market discipline– brings about a measure of economic– depoliticizes essential services – Consumers will be benefited as they would have more choices and

cheaper and better quality products and services – Releases govt’s tangible and intangible, such as large manpower

currently locked in managing poor performing PSUs, and their time and energy, and deploys them in high priority social activities  

HR issues

• Loss of public interests• Fear of foreign control• Issues with workers • Less number of bidders• Raises conflicts between the government and the

employment union of the PSU. • Impact on employees

Significant increase in work load and stress Fear regarding job cuts

BALCO case study

Case study on BALCO• Company profile– Incorporated in the year 1965.– Core business making aluminium a leading metal with

myriad.Korba Plant Bidhanbag Plant

200,000 tonnes per annum capacity Alumina plant.

Hot and Cold Rolling Mills (3600 tonnes capacity).

100,000 tonnes per annum capacity Smelter.

One Extrusion Press (1250 tonnes capacity).

Three wire rod rolling mills for manufacture of Aluminium redraw wire rods.

Foil Plant (600 tonnes capacity).

Three Extrusion Presses (3150 tonnes, 2500 tonnes and 800 tonnes capacity).

Conductor Plant.

Hot and Cold Rolling Mills (40,000 tonnes capacity).

274 MW power plant.

Continoue

• Feb 2001 GOI struck with its disinvestment deal of BALCO

• GOI had 100% holding in BALCO• They decided to sale 51% of its stake• In yr 2000 turnover of BALCO – Rs 898 cr• PAT was- Rs 56 cr

HR issues

• Issues start with the announcement of disinvestment

• Employee raised point– BALCO was profit making company– Company had huge capital of Rs 500 cr– It was the only PSU that paid it’s 50% equity– Government should not jeoparadise the feature of

workers

HR issues

• Government replay– In late 1990’s only 50% of BALCO profit had been

accounting for operating profit– Other 50% of income due to interest income from

fixed deposits– BALCO was running on outdated technology– Due to high international aluminum price they are

making profit

Main HR issues

• In Feb 2001 union filed petitions with DCA and MRTPC• Petitions contain

– Fixation of reserve price before the start of disinvestment process

– Valuation of company by GOI– Non-settlement of pending dues by many of foreign and

domestic parties– Without valuation of assets of BALCO on fair market value

• They ignored new cold rolling project worth of Rs 184 cr• They ignored korba plant, bidhanbag plant, land, quarters, and

buildings worth of Rs 800 cr

Continoue

• Opposition said – Worth of company at over Rs 2900 cr against

disinvestment price of Rs 551 cr– Valuation of BALCO faulty– Company’s captive power pant alone could fatch

Rs 1050 cr

Post disinvestment HR issues

– Worker worried about their survival– Protection of their services– Profit making company– Demand of worker for sustain in the company